In this video, Brandon Raatikka walks through how to use a third party due diligence report while evaluating an alternative investment option.
#1: Who stands behind the investment?
Use the report to get a sense of who stands behind the investment program. After all, the relationship you are entering into is as important as the structure of the deal itself.
#2: How does the analyst assess the offering?
Pay particular attention to how the analysts who have prepared the report have assessed the offering information provided by the sponsor and how they put that information into broader context. For instance, does the report opine on whether the structure is customary? What does the report say on the amount and the nature of the fees? Are they in line with similar programs?
Due diligence reports should use independent data to further assess the offering which may either corroborate the sponsor's disclosures or else call them into question.
#3: Identifying risk through due diligence
Ultimately what you want to get out of a due diligence report is a thorough understanding of the factors that will affect whether the program meets it's investment objectives. After all, the key risks will be related to all of those factors.
The due diligence report should identify any serious red flags related to the execution of the deal or the investment strategy.
If you use a due diligence report in these ways, it will become a critical aid in your investment decision making.